VA, DEFENSE DEPT. HEALTHCARE SET TO MIRROR PRIVATE SECTOR

Call 1996 the year when the largest federal healthcare providers could catch up with the private sector.

If their restructuring plans can be implemented, both the Department of Veterans Affairs and the Defense Department healthcare systems will more closely resemble private-sector providers by the end of 1996 than they do now. This means more emphasis on managed care and cost cutting to squeeze more from a shrinking budget for both systems.

By the end of this year, most of the military dependents and retirees eligible for the Civilian Health and Medical Program of the Uniformed Services, or CHAMPUS, will be covered by regional managed-care plans called the Tricare program.

The VA has reorganized its 172 hospitals and 530 other healthcare facilities into 22 locally controlled "veterans integrated service networks," or VISNs, and this year hopes to enroll all its patients into primary-care plans within each VISN.

In addition, this year, the $16.2 billion healthcare system plans to embark on a variety of cost-saving strategies-some of them now common in the private sector-and ally itself with private-sector providers in an effort to cut expenses and improve quality.

Among those strategies is consolidating thousands of community-nursing-home contracts into a small number of regional contracts, which could reduce administrative costs. The first contract awards in that program could be announced by mid-February.

"I would say that '96 will prove probably to be the make-or-break period" for the VA healthcare system, said David Gorman, executive director of the Washington headquarters of Disabled American Veterans.

Gorman said the VA should be given a chance to demonstrate that it can restructure itself to provide quality healthcare to veterans under budgets that are expected to stay the same or even decrease in the future. If the VA fails, he said, the future of a government-owned-and-operated system is open to question.

Standing in the way of necessary restructuring, however, are rigid rules that make it easier for some veterans to be admitted to an inpatient bed for care that could be delivered as effectively and less expensively in an outpatient clinic, increasing costs for the entire system.

The House of Representatives, in its balanced-budget legislation, passed an eligibility reform measure that would have authorized the VA to provide all needed outpatient care, including home care and preventive care, to most veterans with disabilities related to their time in the service, as long as the department does not exceed its healthcare budget.

That measure was not included in the final compromise balanced-budget legislation that emerged from Congress, although the Senate pledged to hold hearings on the issue in the next session of Congress.

By the end of 1996, the Defense Department expects to award the three remaining Tricare contracts in some 35 states. So far, about half the 5.5 million military dependents and retirees eligible for CHAMPUS are in areas covered by Tricare contracts.

The Pentagon recently awarded to Humana Military Healthcare Services another huge five-year contract worth $3.8 billion and covering 1.1 million beneficiaries in the Southeast. That contract begins operating in July.

Only one other managed-care company, Foundation Health Federal Services, has won Tricare contracts. But in a recent twist, providers have been allying to bid for the Tricare pacts.

Medical College of Georgia in Augusta forged a coalition called Academic Health with Columbia/HCA Healthcare Corp., Prudential, several academic health centers and other providers and insurers to bid for a contract in seven Southeastern states.

Although it lost its bid, the group was the lowest bidder in the region and has protested the award to Humana.

And in a 15-state region covering the Southwest, Rocky Mountains and part of the Midwest, the Western HealthCare Alliance, a partnership of Samaritan Health System in Phoenix and HealthPartners of Southern Arizona in Tucson, is bidding to cover 750,000 CHAMPUS beneficiaries.

"I think it's the marketplace at work," said Charles Partridge, legislative counsel for the National Association for Uniformed Services. "I think it's a healthy sign that providers are coming in."